A Commentary on the Passing Scene by
Robert Paul Wolff
rwolff@afroam.umass.edu

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Monday, August 18, 2014

WAS MARX RIGHT?

Last Saturday, Chris asked what my thoughts are on Marx's law of the tendency of the rate of profit to fall, and he then provided this link to a short article by Michael Roberts. The next day, Dr. Andrew Blais echoed Chris's interest. Herewith a response.Chris and Andrew are really asking two questions, though they may not realize it. I have an answer to the first one [which, I suspect, Chris will not like.] About the second question, to which the linked article is relevant, I have no opinion at all, nor do I have the technical skills to form one. If I may use contemporary terms of art from the field of Economics to express myself concisely, the first question belongs to Microeconomics and the second question belongs to Macroeconomics.The classical political economists, of whom Marx was the last and the greatest, engaged in microeconomic reasoning. They made certain assumptions about the goals, knowledge, and rationality of agents in a legally free market capitalist economy and then sought to deduce a variety of conclusions about how such an economy would function. They all agreed that in such an economy, over time, competition and a series of rationally self-interested choices by producers and consumers would establish a consistent system of relative prices and a single economy-wide rate of return on invested capital, or profit rate.What happens when a more profitable capital-intensive technique is introduced into one line of production by an innovative capitalist? First of all, his [let us suppose] profits rise, a fact noticed by his competitors. Since he can produce more cheaply, he can afford to undersell those competitors and still reap a super-profit. In response, the competitors over time shift to the new capital-intensive technique pioneered by the adventuresome innovator, and profits rise generally in this sector, relative to other sectors. Over more time, capitalists in other sectors switch their investments into the more profitable sector, resulting in increased output in the more profitable sector and a decline in output in the less profitable sectors. The mismatch of supply and demand has the effect of adjusting prices, and hence profits, upward or downward until once again an economy-wide rate of profit emerges.I keep writing "over time," by the way, because there is a certain amount of friction or stickiness in any economy, as a result of investments in fixed capital, and so forth. All of the classical political economists understood that.Well, what happens to the rate of profit. Does it settle at a higher or lower level after the shift to a more capital-intensive technique?Marx believed himself to have demonstrated that profit is the money form of the surplus labor extracted from the workers by the capitalists in the sphere of production. From this conclusion, and other considerations, he deduced the further conclusion that as capitalists substitute more capital-intensive for more labor-intensive techniques of production as a way of securing, at least momentarily, an increased profit, the long-run and unintended effect of this series of choices of technique will be a tendency for the economy-wide rate of profit to fall.Marx was in fact wrong in thinking he had demonstrated that profit is the money-form of surplus labor [as I demonstrated in my book, Understanding Marx and my article "A Critique and Reconstruction of Marx's Labor Theory of Value"]. What is more, his microeconomic claims concerning the tendency of the rate of profit to fall are false, as was demonstrated by a Japanese economist, Okishio, in [I believe] 1961, and independently by my old colleague at UMass, Samuel Bowles, roughly twenty years later. The truth is that after things settle down, the introduction of the more capital-intensive technique will result in a rise in the global rate of profitSo the answer to the microeconomic version of Chris's question is, Marx was wrong.But after a while, post-classical [or neo-classical, if you wish] economists started asking a series of quite different questions about the movement of certain aggregate economic quantities and the statistical laws, such as they may be, expressing the movement of those quantities -- aggregate capital, aggregate profits, gross domestic product, and all the other wonderments of modern economics. They made no effort to deduce these magnitudes or their movements from assumptions about the knowledge conditions and rationality of individual agents. Instead, they constructed formal models of the economy with dummy variables representing various aggregate quantities. They then collected vast amounts of data which they organized in time series, and made projections on the basis of those time series of future probable trends.The second question asked by Chris and echoed by Andrew is this: From a macroeconomic perspective, on the basis if available data, is the global rate of profit falling? Michael Roberts, in his very interesting short piece, reports calculations he has made that show the global rate of profit falling, then reversing and peaking, and then falling again. Roberts quotes work by others, based on somewhat different methods of aggregation, showing a relatively steady decline in the global rate of profit extending over a century.Let me repeat: I have absolutely no competence to judge the soundness of Roberts' assertions, so I propose to accept them on face value. At least until someone steps forward to disagree who does have some technical competence in these matters, let us agree that the global rate of profit is falling, and has been doing so for a good long time.I hope it is obvious to everyone that this fact, which we are stipulating, constitutes no sort of confirmation at all of Marx's argument. If that is not obvious, I suppose I shall have to write another post explaining why, but surely it is manifest. To put the matter simply in terms of really old fashioned logic, the truth of the conclusion of a syllogism does not in any way demonstrate the truth of the premises. Indeed, even the truth of the premises and of the conclusion does not demonstrate the validity of the syllogism. [All Republicans are scoundrels. Some red wines are overpriced. Therefore all giraffes are tall.]

22 comments:

You're right that we disagree about the veracity of Okishio's theorem (which as far as I know was proven false by a number of economists, many recently), but it's good to know where you stand. Thank you.

Chris, I am pretty sure Okishio's theorem is formally valid, although obviosuly anyone can disagree with the way it is set up and formulated, but even if it had been refuted, that would not lend any weight to the claim that Marx has demonstrated the tendency of the rate of profit to fall. It would also have nothing to do, as I indicated, with whether in fact the rate of profit has been falling, which I am happy to assume it has.

You're certainly right that just because the rate of profit has been falling, it does not follow that Marx's reasons as to why it would fall are correct. Although, Michael Roberts has been tracking the rate of profit for a long time on his blog and juxtaposing it to Marx's theory, and the numbers come out quite right. The same is true of Kliman's work in his book "the failure of capitalist production." Marx's theory does match the data.

The issue with Okishio, if I remember correctly, is that he doesn't read Marx in a TSSI format. So Okishio's argument may be valid, but his reading of Marx doesn't grant Marx the principle of charity, and so he operates under poor (uncharitable) premises (which means the argument isn't sound). If Marx is read with the principle of charity in mind (the TSSI reading), Okishio's theorem is of no real importance. And as philosophers we are obligated to grant all theorist the principle of charity. Okishio is a simultaneous in terms of valuing inputs and outputs, and not a temporalist. Since both readings of Marx are possible, and one renders Marx more coherent and systemically consistent, then the latter reading, according to the principle of charity, is the necessary reading.

I'm not trying to belabor the point or reengage our old discussion, I'm only pointing out that Okishio certainly doesn't deserve the last word on the subject.

If you're interested in a very short two page argument as to why Okishio's theory is unsound you may like this:

Nevertheless, it's nice to be clear on where you stand. Thank you for making a post based upon my request.

The issue with Okishio, if I remember correctly, is that he doesn't read Marx in a TSSI format. So Okishio's argument may be valid, but his reading of Marx doesn't grant Marx the principle of charity, and so he operates under poor (uncharitable) premises (which means the argument isn't sound). If Marx is read with the principle of charity in mind (the TSSI reading), Okishio's theorem is of no real importance. And as philosophers we are obligated to grant all theorist the principle of charity. Okishio is a simultaneous in terms of valuing inputs and outputs, and not a temporalist. Since both readings of Marx are possible, and one renders Marx more coherent and systemically consistent, then the latter reading, according to the principle of charity, is the necessary reading.

I'm not trying to belabor the point or reengage our old discussion, I'm only pointing out that Okishio certainly doesn't deserve the last word on the subject.

If you're interested in a very short two page argument as to why Okishio's theory is unsound you may like this:

Charity requires interpreters to maximize coherence and truth telling, but any interpretation that amounts to imputing the expression of tautologies does this. Facetiously put, why impute ineffective interpretive habits to Okishio, when imputing any tautology would maximize his coherence and truth telling? There are limits to hermeneutic charity, although it could be that they are not relevant to this particular text of Marx.

Here is something that would bring light to this for me. I'd like to see how this plays out in sort of simple two or three sector economies that Bob uses in Understanding Marx. Is this possible? This is contrary to the Socratic principle that examples don't explain essences, but perhaps by beginning with examples, I can begin to loosen my chains and make my way out of the cave to the sunlight where I can behold the thing in and for itself?

The problem is that Okishio is the one giving the uncharitable reading of Marx. Whereas we can read Okishio to the letter, and of course his argument works, but it's founded upon uncharitable premises. There are different possible readings of Marx's 'transformation problem', i.e., the determination of values of inputs and outputs in an economy. If you read him as valuing inputs and outputs simultaneously, as Okishio does, then Marx's rate of profit theory and his transformation solution are incoherent and they render Marx an inconsistent thinker. Whereas if you read him as valuing the inputs and outputs temporally (like any normal businessmen would in their own businesses inputs and outputs), then Marx is consistent. Once he is consistent Okishio's theorem is no longer of concern, since his premises are founded upon the uncharitable reading. So why would you be obliged to read Marx uncharitably? Even if one wasn't a Marxist, and was an outright fascist, there is still no REASON to read Marx uncharitably.

You seem to be suggesting, but not outright stating, that because it's possible to read someone charitably in such a way that it's a tautology, Marx may be being read in a tautological fashion. But that isn't the case here. I'm discussing the specific premises Okishio uses in his theorem to refute to Marx's rate of profit theory.

So I'm not "imput[ing] ineffective interpretive habits to Okishio", as I specifically said in my earlier post, if we read Marx charitably then "Okishio's theorem is of no real importance" when claiming that Marx's theory of the rate or profit to fall is inconsistent.

In my six years of reading and understanding Marx, I’ve come across a very common trend. Many suggest he should be read in order to see a great mind in action, and in order to understand his criticisms of capitalism, but that we shouldn’t actually believe anything he says, because all his theories are outdated and/or proven wrong (Jonathan Wolff wrote an entire book on Marx with that specific thesis: read him, enjoy him, but don’t believe him, praise liberalism). As soon as someone starts defending some of the original more ‘orthodox’ or ‘classical’ Marxist positions, e.g., rate of profit to fall, labor theory of value, broad exploitation, there’s an implicit dismissal that tautologies, spurious thinking, or even pious/religious reverence for the demi-god Marx is taking place. I’m not accusing you, Andrew, of this position, but it is a trend I worry about, since my interest in Marx is only six years old, and I’m too young to be caught in the cold-war mentality of reading Marx.

So in short, Okishio’s theorem is not a good rejection of Marx’s rate of profit to fall theory. That doesn’t mean Marx’s theory is right (but that’s what Michael Roberts and Kliman continue to test and affirm). And one can hold these positions without thinking Marx was tautological and a demi-god. He was a regular guy, but maybe, just maybe, he was right about this aspect of this our economy?

Good discussion. I have posted some analysis here which is a development of some text from Volume III. Would be interested in your reaction. It may well be that the general rate of profit has fallen in the past century, but it doesn't seem to me that is necessarily true by the analysis in Volume III.

Love the concluding false syllogism! It fails by a fallacy of relevance, it seems.

Magpie it's kind of hard to leave Marx out of the picture entirely, as the TSSI is a reading of Marx's value theory. It's not the only possible reading of Marx's work, but it's the one that makes Marx make sense, and lack inconsistency. Since we cannot know for certain what Marx himself thought of the matter, we have to interpret his texts, and the principle of charity should ALWAYS prevail in the interpretation of ANY text.

The answer to 1, 2, and 3, is a yes to all of them.

This reading of Marx retains all those components, renders Marx internally consistent, and from the work done by Kliman and Roberts (among others), greatly explains the present operations of capitalism.

Randal, Heinreich suffers from a similar problem as Okishio, he just totally misreads Marx, or reads Marx in a way that requires Marx's inconsistency. I could offer several counter articles to Heinrich if you're interested.

I know I'm repeating myself, but for some reason with other thinkers this is less of an issue. If two (or more) readings of a text are possible, but one text renders the text consistent, the principle of charity requires that we do the latter.

"But, ultimately, I have to disagree: regardless of the authorship of the ideas, the ideas themselves are there and they are useful or not. "

I'm not sure what you're disagreeing with exactly. My point was maybe Marx did or did not support the TSSI reading of his text, but we can't know because he's dead. However we do know as good philosophers that we owe it to a fellow thinker to read them charitably.

When I think of charity, I think of Wilson, Quine and Davidson. Mostly Davidson though. And I think of the principle of charity, which I understand like this. Suppose that you have a text. Suppose that on one interpretation, the text is either contradictory or simply false. On another, though, it is coherent or perhaps simply true. The principle of charity says that you should opt for the second interpretation of the text. In short, maximize coherence and truth telling. Nothing here about Marx, yet. Now, the principle of charity seems like a fairly good heuristic. Maybe it is. Maybe not. I think that it needs to be tempered with at least a sense of historical context. Reading Plato on the Forms as really about quantum mechanics may make him coherent and a truth teller, but such a reading would at least lack historical context. No?

Another way that the principle of charity needs to be tempered, I think, is by requiring its use to balance the demand for coherence and veracity with a demand for content. So, imputing tautologies satisfies the demand for coherence and veracity, but it sucks on imputing contentful beliefs.

In short charity is not the sole principle of interpretation. It may not be the most important principle of interpretation. As John said when asked whether Ringo was the best drummer in the world, "He's not the best drummer in the Beatles...." That is a long winded point about charity.

But, something occurred to me while reading your post. The Marxian text presents itself, it is said, as establishing a logical connection between some premises about a capitalist society and a conclusion about the tendency of the rate of profit to fall. So, it seems innocent to ask whether there really is such a logical connection. Enter Okishio: "No, there isn't...ahem...at least not on my reading of Marx...in which start and finish prices are the same...." Time ticks. Enter the agents of TSSI: "Yes, on the TSSI reading that makes Marx coherent and a truth teller, i.e., the charitable reading, there is...oh yes!...there is a logical connection!"

The odd thing about this use of the principle of charity, then, is that it is a case in which it isn't necessary to balance maximizing coherence and truth telling with imputing contentful beliefs. Precisely because the imputed belief is, or is said to be, a logical truth.

By the way, perhaps this should have been first, but it is clear that the question is about whether a conditional is logical truth, no?

I am no philosopher -- this goes to you too, Chris -- I'm just some lowly guy interested on Marxism; so now it's my turn to say that I am not sure I understand you (I am not implying anything other than my own ignorance of philosophy).

But assuming I do understand the basic gist of your comment, I think I am asking about the debaters' views about what Andrew seems to call "demand for content".

And I will explain my motivation: I want to argue a case for socialism on a theoretically sound base, with empirical support. If someone hits me in the head with the charge of inconsistency, I want to be able to refute it. If someone objects on empirical grounds, I want to be able to show the real figures.

So, I reformulate my question thus: Does the TSSI offer me this?

Chris seems to answer in the affirmative, what about you, Andrew, and Prof. Wolff?

You wrote, "Heinreich suffers from a similar problem as Okishio, he just totally misreads Marx, or reads Marx in a way that requires Marx's inconsistency. I could offer several counter articles to Heinrich if you're interested."

Actually, my blog post was not really about Heinrich (or Okishio or TSSI, for that matter, because these references were unknown to me), but about Volume III. I have read Roberts' counter arguments. but what I addressed in the blog piece was not Roberts, but what I read in Volume III. What I find there is that by Marx's formula for the rate of profit as a function of investment, it doesn't fall if the surplus value derived from the investment is greater than the investment. Marx didn't develop this alternative, as far as I can see. Marx assumes a constant value for s/v. Maybe he would have tried other possibilities if he had had the graphing capabilities of Excel! But why would a capitalist invest if he didn't think that the investment would be exceeded by the surplus?

Naive me, I didn't realize that this had been already exposed by Okishio in 1961! But I still haven't seen this paper. It doesn't seem to be available through JSTOR. In any case, I hadn't considered any of these references before writing the post. Just worked from what I read in Volume III.

Magpie," I want to argue a case for socialism on a theoretically sound base, with empirical support. If someone hits me in the head with the charge of inconsistency, I want to be able to refute it. If someone objects on empirical grounds, I want to be able to show the real figures.

So, I reformulate my question thus: Does the TSSI offer me this? "

The reason I answer in the affirmative is that Marx DOES argue all these points you want to argue (e.g., capitalism is exploitative, it's crises prone, and it all around sucks). And his argument works until around chapter 9 of Volume III when you get the infamous transformation problem. But the TSSI reading of the solution renders it a problem no more. Now of course Marx could be completely right and still his theory could not match real world economic data. But again, people within the TSSI reading have been testing the two and coming out with very promising results.

Randal I'm sorry I didn't give your paper a fair read. I intend to. This is just the super busy time of year for me (first week of school, I'm teaching and taking courses).

" To me it seems to show that, even in Marx’s world of pure competition, it is very possible for profit rates to increase, but for this to happen the rate of exploitation needs to increase more dramatically as more investment is applied."

Marx's first counteracting influence to the law is specifically "increasing intensity of exploitation".

I find the whole "Counteracting Influences" chapter of Volume XIV quite round-about and equivocating. Is the "Tendency of the rate of profit to fall" a "Law" or not? Yes, the first "counterbalancing force" is "increasing intensity of exploitation". But he goes back and forth several times in this section, starting from "lengthening the working day" (which is not to the point) to "improvement in methods" (which is to the point). But he then asks whether "the factors that check the fall of the rate of profit, but that ALWAYS (my emphasis) hasten its fall in the last analysis, whether those include the temporary, but always recurring elevations in surplus-value above the general level . . " and here my translation is garbled. So I am not really sure what the question is.

I find most of this section similarly garbled. He does not seem to address the situation which I show in my blog results in a rise in the rate of profits with investment. If you could find it in here, I would appreciate your pointing it out.

Randal, I'm in the opposite position as you, I find that chapter quite illuminating and helpful.

There has no long been a basic criticism of Marx's theory that repeats what you said: is it a law or a tendency? And then presumes from that question that the theory has a problem. I don't see how that's the case, and you may be interested in checking out the philosophy of science known as critical realism. This is a philosophy of science that sees laws as tendencies given the nature of things. So there is a law of nature that says water will boil at 212º, but this is only a tendency of water, since it can do other things too. Moreover, there are of course countervailing forces that can impact this law (altitude, or solvents). Marx seems to be saying the same thing about the social relations of capitalism.

I'm quoting one critical realist (Andrew Collier): “to say that there is a generative mechanism in capitalism which necessarily generates a tendency of the rate of profit to fall, is not to say that the rate of profit will fall no matter what else happens, any more than a doctor who says a patient is out of danger is saying that that patient can safely step in front of a bus”

Marx even says, when referring to the fact that profit rates across industries tend to equalize, that this equalization can be “viewed as a tendency like all other economic laws”. And these tendencies endure so long as the social relations of capitalism endure. And when the social relations of capitalism stop enduring, these tendencies of laws will too.

Thanks so much for your reply. It seems to contain much wisdom. But if I had to guess which theory of science will get us closer to unraveling the mysteries of the universe, I would put my money on quantum mechanics, rather than critical realism.

So I am still left with what Marx actually said in Volume III. And here he proposes what I would call a tiny model: p' = s / (v + c). Surely, this is not all that is going on in a capitalist (or any other) economy. Marx was aware of this, as was Proudhon, for example. Labor is indeterminately productive. We can't really predict what it's inventiveness will come up with.

All that I have tried to unravel in my blog piece is what are the logical (mathematical) consequences of Marx's tiny model. And this seems to show that in the case that seems to be most plausible (capitalists invest in anticipation of making a given labor pool more productive) the rate of profit has a "tendency" to rise, not fall. Because the tiny model can't hope to encompass everything that is going on in an economy, we shouldn't be surprised to see that rates of profit could go either way. Some investments are bad. But WITHIN Marx's tiny model, I find that the "tendency" is the opposite to what he maintains.

Why did he not see this? Was it because he linked this result to his instinct that capitalism was historically doomed? Is that what all the heat is about in this debate?

I love what Yanis Varoufakis said in his blog after his encounter with Zizek at last year's radical conference. I think this captures some of the true contradictions in this debate better than I can here.

Randal, I appreciate the reply.For some reason I don’t see any mention of Zizek in that blog post? I do empathize with the author of the post though, in that in many academic settings I waver between being reticent about my views, to ensuring I insert them. Of course given the anonymity of the internet, I do the latter more Critical realism is a philosophy of science; quantum mechanics is a field of science. There's an important distinction there. In general critical realists argue that the sciences are in fact getting at the nature of reality, unlike let us say Kantians who argue that there is an unbridgeable gulf between the subject and the thing in itself, or Humeans who may argue that we cannot be absolutely certain that our sciences really are correct because the future may be different from the past. A blogs comment section is certainly not the best space to give a critical realist critique of these opposing views and then offer up a reason as to why critical realism should be preferred, but if you're interested I'd recommend reading Roy Bhaskar's A Realist Theory of Science, and The Possibility of Naturalism. So the theory acts as an under laborer to defend the sciences from detractors, but it does not propose to do science. So by all means embrace quantum mechanics.

“So I am still left with what Marx actually said in Volume III. And here he proposes what I would call a tiny model: p' = s / (v + c). Surely, this is not all that is going on in a capitalist (or any other) economy.”I think all three volumes of capital, the grundrisse, the economic and philosophic manuscripts, plus the notes on surplus value, are definitive proof that of course Marx did not think that p = s/(v+c) was “all that is going on in a capitalist economy”, but it is the case that for Marx the extraction of surplus value is a necessary condition for the health of (a very unhealthy system) capitalism.

“We can't really predict what it's inventiveness will come up with.”Marx would be the first to champion this sentence. Again, the EP Manuscripts would attest to this. It’s specifically because capitalism channels our creative inventiveness into labor saving technologies, and technologies that increase efficiency, instead of technologies that allow for our well rounded development, that he often damns capitalism so intensely.

“And this seems to show that in the case that seems to be most plausible (capitalists invest in anticipation of making a given labor pool more productive) the rate of profit has a "tendency" to rise, not fall.”

Marx says the same thing in Vol I and III. This isn’t a critique of Marx, it’s an affirmation of his theory. He’s always pressing the point that capitalist in a narrow sector of the economy can increase productivity and thus increase profit. (He was very happy with himself that he was able to answer the hotly debated issue in his day as to why capitalists would seek an increase in productivity when past theories of political economy suggested it would be bad for profit rates; this comes out strongly in Vol I) But the point is that when larger and larger sectors of the economy start to do this, the SOURCE OF VALUE (i.e., human laborers) is mitigated/fired/laid off, and thus so is surplus value. You have to remember that one can derive a profit, while adding no NEW/EXTRA/SURPLUS value to the economy (think of those do it yourself laundry services, or car washes you see – those owners can be rolling in profits and adding no new value to capitalism).“Why did he not see this? Was it because he linked this result to his instinct that capitalism was historically doomed? Is that what all the heat is about in this debate?”

I think he did see it, and you’re not seeing that he saw it. Fortunately nowhere in Vol I-III is there a theory of necessary collapse, as is often attributed to Marx. Best,-CB

You say, “A blogs comment section is certainly not the best space to give a critical realist critique of these opposing views . . .” Agreed or, in any case, not Professor Wolff’s blog comment section. If you would like to continue this, may I suggest that you post further comments on my blog. I will reply to your latest comment on my blog and reply to your current comments there.

About Me

As I observed in one of my books, in politics I am an anarchist, in religion I am an atheist, and in economics I am a Marxist. I am also, rather more importantly, a husband, a father, a grandfather, and a violist.